Canada and the EU tie the knot

"CETA is not only about commerce, imports and exports, about profits. It aims to improve people's lives." Credit: EU

February 16, 2017

The European Union is opening the doors to freer trade at precisely the moment that free trade is under the most serious threat since the Great Depression, writes Geoff Kitney

Amid an increasingly loud appeal by political populists for a return to trade protectionism, the free trade agreement between the European Union and Canada has provided hope that free trade deals are still possible.

The ratification on Wednesday by the European Parliament of CETA (Comprehensive Economic and Trade Agreement) clears the way for the provisions of the agreement to begin being implemented – removing tariffs and duties on trade between the EU and Canada on a wide range of goods and creating common rules for trade in services, government contracting and intellectual property.

Today, Canadian Prime Minister Justin Trudeau addressed MEPs in Strasbourg. He said: “CETA is not only about commerce, imports and exports, about profits. It aims to improve people’s lives”.

The irony of the European Parliament’s vote is that the Europe Union – not long ago seen as a protectionist institution – is opening the doors to freer trade at precisely the moment that free trade is under the most serious threat since the Great Depression.

Whether this will come to be seen as the beginning of the fightback for trade liberalisation or the last gasp of one of the most important aspects of the globalisation process remains to be seen. The signals coming from the Trump administration are not encouraging.

However, the signal that the approval of CETA sends will be welcomed in the United Kingdom which, more than any other nation is looking to a future in which trade liberalising agreements with other nations will fundamentally determine whether Britain faces a prosperous future or a bleak one.

The willingness of potential partners to free trade agreements to resist the populist push for protection of domestic industries and the exclusion of foreign goods – and foreign people – is critical to the May government’s long-term goal to make Britain a global leader of trade liberalisation.

But while there is much to encourage Britain in the progress of CETA against the protectionist tide, warning lights are also flashing.

One key aspect of the CETA agreement will not be implemented immediately – and possibly not for years.

This is a provision which would allow businesses in either the EU or Canada to take legal action to prevent – or claim compensation from the impact of – decisions by governments on either side of the Atlantic which corporations claim would hurt their businesses.

The so-called Investor to State Dispute Settlement (ISDS) provisions in CETA have been the most hotly contested aspect of the negotiations, with Canadian corporations demanding its inclusion but EU members states strongly resisting.

In the end, it was agreed by both parties that the ISDS process would operate within limited rules and with an independent court to consider them (unlike in US-negotiated FTAs in which the US has insisted on tribunals nominated by the affected companies).

Many of the EU’s 28 member states are under strong domestic political pressure over the ISDS provisions which are seen as a threat to the national sovereignty of member states. Opponents of the ISDS provisions argue that they would undermine the ability of national governments to legislate to protect their citizens from the impact of potentially hazardous or unsafe products or processes.

For the ISDS provisions in CETA to come into operation the rules by which the independent tribunals operate and the issues on which they can adjudicate will have to be approved by each of the EU members states separately – a potentially long and cumbersome process. But the EU and Canada agreed to implement the FTA ahead of the finalisation of this process.

The ISDS issue is an important one for Britain as it is certain it will be a big issue on the table in the negotiations that it will have to engage in to ensure the UK has liberal access to foreign markets once it has left the European Single Market.

With foreign corporations insisting their governments ensure that their businesses are protected from so-called “sovereign risk” in their business operations in the UK, the danger for the May government will be that it could be seen as putting UK sovereignty at risk if it agrees to ISDS provisions which are not very limited in their scope.

Given that Britain is leaving the EU in large part to regain sovereignty lost to the EU by reason of its EU membership, any trade agreement that is seen as undermining UK sovereignty would be politically dangerous for the government.

News Bites

May to hold talks with Merkel in Berlin
Theresa May is due to hold talks with German Chancellor Angela Merkel as she seeks to make progress on negotiating Brexit. The PM will travel to Berlin for the meeting at the Chancellery. It comes a day ahead of a speech on Saturday in which she is expected to set out the “security partnership” she wants to maintain with the EU. The UK is under pressure to reveal more detail about the final relationship it wants with the EU. Mrs May and her ministers are setting out what has been dubbed “the road to Brexit” in a series of speeches. BBC news, February 16

UK aims to keep financial rules close to EU
The UK is ready to set out its vision for how it wants financial services to operate after Brexit and favours an ambitious “mutual recognition” of regulations to preserve the City of London’s access to the EU. Under Britain’s proposal, the UK and the EU would recognise each other’s regulatory and supervisory regimes and would have aligned rules at the point of Brexit, with a mechanism that would monitor any divergence. Three senior figures briefed on Brexit discussions in the cabinet said that the government will back the proposal, which is also favoured by Mark Carney, the Bank of England governor. Financial Times, February 16

Business leader warns May against harsh immigration policy
British companies are facing a recruitment crisis, with labour shortages hitting critical levels in some sectors, according to a business leader who has urged the government to produce details on a post-Brexit immigration system. Adam Marshall, the director general of the British Chambers of Commerce, said the lack of candidates for some jobs was biting hard, and he warned ministers against bringing forward a “draconian and damaging” visa or work permit system. Surveys by the BCC showed that nearly three-quarters of firms trying to recruit had been experiencing difficulties “at or near the highest levels since [BCC] records began over 25 years ago”, he said. The Guardian, February 16

Lecturers want ‘radical’ tuition fee review
University staff are calling for a “radical” overhaul of tuition fees and higher education funding in England in a review of student finance. Sally Hunt, leader of the University and College Union, says the review must be more than “tinkering at the edges”. The review, expected to be formally announced in the near future, follows a promise by the prime minister to examine the cost of university. Theresa May said the review would show “we have listened and we have learned”. Ms Hunt, whose members are threatening strike action next week in a pensions dispute, says there needs to be a “fundamental look at university funding”. BBC news, February 16

Shampoo ‘as bad a health risk as car fumes’
Shampoo, oven cleaner, deodorant and other household products are as significant a source of the most dangerous form of air pollution as cars, research has found. Scientists studying air pollution in Los Angeles found that up to half of particles known as volatile organic compounds (VOCs) came from domestic products, which also include paint, pesticides, bleach and perfumes. These compounds degrade into particles known as PM2.5, which cause respiratory problems and are implicated in 29,000 premature deaths each year in the UK. Traffic had been assumed to be the biggest source of air pollution. The new findings, published in the journal Science, led to warnings that countries may struggle to hit pollution targets, with most tackling vehicle emissions. The Times, February 16

US rejects China bid for Chicago Stock Exchange
The US has rejected a proposed merger between the Chicago Stock Exchange and a Chinese-linked investor group. The decision comes after more than two years of reviews by officials. The tie-up was initially approved by the Committee on Foreign Investment in the United States, pending further approval by the Securities and Exchange Commission (SEC). But US politicians, including President Trump, have said letting a Chinese firm invest in a US exchange was a bad idea. Under the proposal, the Chinese-led North America Casin Holdings group would have bought a minority share of the privately owned Chicago Stock Exchange. BBC news, February 16

Labour gets 16,000 emails in five days urging it to consult on Brexit
More than 16,000 people have emailed Labour over the past five days, urging the party to consult members on Brexit after MPs said the topic was being ignored by its most senior policy body. The emails from party members will be examined by the party’s national policy forum (NPF), which meets this weekend in Leeds, and whose members include the shadow cabinet and trade union leaders. Labour has set up eight policy commissions since last year’s general election, to consult members and develop policy, but none focus on Brexit. The party has said Brexit is covered under the international policy commission, involving Keir Starmer, the shadow Brexit secretary, but that commission is not at the moment accepting submissions on Brexit. The Guardian, February 15